[Auto lenders were perhaps the biggest winners of the 2005 Bankruptcy Reform, as Chapter 13 bankruptcy filers can no longer “cramdown” the amount owed on recent auto loans. We estimate the causal effect of this anticramdown provision on the price and quantity of auto credit. Exploiting historical variation in states’ usage of Chapter 13 bankruptcy, we find strong evidence that eliminating cramdowns decreased interest rates and some evidence that loan sizes increased among subprime borrowers. The decline in interest rates is persistent and is robust to a battery of sensitivity checks. We rule out other reform changes as possible causes.]

For-profit providers have become an important fixture of US higher education markets. Students who attend for-profit institutions take on more educational debt and are more likely to default on their student loans than those attending similarly-selective public schools. Because for-profits tend to serve students from more disadvantaged backgrounds, it is important to isolate the causal effect of for-profit enrollment on student debt and repayment outcomes as well as the educational and labor market mechanisms that drive any such effects. We approach this problem using a novel instrument combined with comprehensive institution-level data on student debt, default, educational attainment, and labor market outcomes. Our instrument leverages the interaction between changes in the demand for college due to labor demand shocks and the baseline supply of for-profit schools. We compare how enrollment and subsequent outcomes change across areas that experience similar labor demand shocks but that have different latent supply of for-profit institutions. The first-stage estimates show that students are much more likely to enroll in a for-profit institution for a given labor demand change when there is a higher supply of such schools in the base period. Among four-year students, for-profit enrollment leads to more loans, higher loan amounts, an increased likelihood of borrowing, and an increased risk of default. Two-year for-profit students also take out more loans, originate more student debt, and have higher default rates. We present evidence that these debt and default outcomes are driven by higher for-profit tuition and a negative effect of for-profit enrollment on labor market outcomes. Our results point to high costs and low returns to for-profit enrollment that generate worse student debt and repayment outcomes. These findings have important implications for public investments in higher education as well as for how students make postsecondary choices.

Auto lenders were perhaps the biggest winners of the 2005 Bankruptcy Reform, as Chapter 13 bankruptcy filers can no longer “cramdown” the amount owed on recent auto loans. We estimate the causal effect of this anticramdown provision on the price and quantity of auto credit. Exploiting historical variation in states’ usage of Chapter 13 bankruptcy, we find strong evidence that eliminating cramdowns decreased interest rates and some evidence that loan sizes increased among subprime borrowers. The decline in interest rates is persistent and is robust to a battery of sensitivity checks. We rule out other reform changes as possible causes. Received September 29, 2016; editorial decision January 15, 2019 by Editor Philip Strahan.

Increasing personal bankruptcy protection raises consumers’ desire to borrow and lenders’ cost of extending credit; the impact on equilibrium borrowing is ambiguous. Using bankruptcy protection changes between 1999 and 2005 across U.S. states, we find that borrowers respond to greater protection by increasing their unsecured debt. Border county estimates suggest that local economic conditions do not drive these results. Borrowers pay more for protection through higher interest rates, yet delinquency is unaffected. Our results indicate that rising borrower demand outstripped decreasing supply. Increased protections did not reduce the aggregate level of household debt but affected the composition of borrowing.

This paper investigates the effects of college tuition on student debt and human capital accumulation. We exploit data from a random sample of undergraduate students in the United States and implement a research design that instruments for realized tuition with relatively large changes to the advertised tuition of students who enrolled at the same school in different cohorts. We find that $5,000 in higher tuition causally reduces the probability of graduating with a graduate degree by 3.1 percentage points and increases student debt by $1,480. Higher tuition also leads to a decline in mortgage balances and an increase in credit card delinquencies.